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Key economic indicators and market events for April by Joe Terranova, Chief Market Strategist
In each of the last three years, a softening in both economic data and equity markets occurred in the second quarter. As we enter Q2 2013, global equity markets are mixed. Year-to-date, Japanese and U.S. equity markets are the strongest performers, with the Nikkei up 20%, the Dow up 10% and the S&P 500 up 9%. At the same time, equity markets are down 2% and 9% in China and Brazil, respectively, while Germanys DAX is also falling short, up only 3% for the year. On the mind of every strategist, money manager, trader, and investor: Will 2013 be the fourth consecutive year that we see a second quarter softening in economic numbers and a peak in equity markets? That answer will begin to be answered this month as we focus on the strength of U.S. economic data, specically labor, housing, and the retail consumer.
April 2013
Sunday Monday
1 10:00 AM:
Tuesday
2
Wednesday
3 8:15 AM:
Thursday
4
Friday
5 8:30 AM:
Saturday
6
ECB Monetary Policy Meeting FOMC U.S. Economy Speeches (George & Yellen)
11 1:00 PM:
10
12 8:30 AM:
13
Presidents Budget Submission to Congress Fed Chair Bernanke Atlanta Fed Address
14 15
FOMC Minutes
16
17
18
19
20
China Q1 GDP
Beige Book
24 25 8:30 AM: 26 27
U.S. Q1 GDP
28
29
30
Times shown are Eastern Time. *Expected earnings release date; may be subject to change.
ECB President Mario Draghi has done an excellent job using verbal intervention to walk the euro down from 1.40 to 1.30 over the last two months. The unfortunate consequence of the euro at 1.40 has been a signicant softening in Germanys economic numbers. With the euro falling, I suspect Germanys data will come in better than expected in April. I also expect Draghi to take a dovish tone to counter the stronger position that the euro could nd itself in against the yen, which has been weakening signicantly. The composition of the Federal Reserve has changed substantially. The real hawk Lacker is gone, as are Plosser, and Fisher. We also gained Rosengren, Evans, and Bullard, who are all dovish. Esther George remains the lone hawk on the FOMC, and I would expect her April 4 speech will lay out genuine concerns about continuing with $85 billion in monthly asset purchases. To counter that, Fed Vice Chair Janet Yellen (and the expected successor to Chairman Bernanke) also gives her speech that day. She clearly thinks the way Bernanke does, and the Street does not seem concerned that she is likely to be at the helm a year from now, and will be responsible for orchestrating the tapering of the Feds asset purchasing program. Last month, the headline gure was +236,000, private payrolls were +246,000, and the unemployment rate was 7.7%. I expect the rate will remain at 7.7% (possibly 7.8%) this month, and that job gains might come in slightly lower. Initial jobless claims have been very strong of late, with the 4-week moving average at its best level since March 2008. While this data suggests improvement in the labor market, it is not the substantial improvement the Fed is looking for. In order for the unemployment rate to decline further, we will need to see pure job growth, which will become challenging as many people who stopped looking for work may regain the condence to try again. As the labor force participation rate stabilizes, I would expect the unemployment rate will begin to moderate.
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FOMC U.S. Economy Speeches (George & Yellen) FOMC voting members Esther George and Janet Yellen give speeches on the economy, George in Oklahoma and Yellen in Washington, D.C.
U.S. Labor Report Private payroll data is part of the Labor Departments monthly U.S. Employment Situation report. This data gives the true employment story, is the best gauge of the economys direction, and has the power to move markets.
German Trade Balance Germanys monthly trade balance report is released by the Federal Statistical Ofce in Wiesbaden, and provides detailed import and export data for the country.
China Trade Balance Chinas monthly trade report provides important import, export, and interest rate data on the Chinese economy.
FOMC Minutes The Federal Open Market Committee (FOMC) releases minutes from its March meeting.
U.S. Retail Sales Retail sales data are released monthly by the U.S. Department of Commerce, providing total sales receipts for durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Each report is based on the previous months data.
JPM & WFC Earnings JP Morgan (JPM) and Wells Fargo (WFC) are expected to release earnings on April 12.*
China Q1 GDP Chinas gross domestic product (GDP) growth rate provides an aggregated measure of changes in the value of goods and services produced by China, the second largest economy in the world.
Were looking at China GDP growth of 7.8%-7.9% on a year-on-year basis, and approximately 2% quarter over quarter. Some unique measures are being enacted by Chinas new administration, and clearly an effort is underway to calm down property prices in the housing market. The new administration has many challenges to stimulate growth while also ghting ination. The most important China metric for investors to focus on would be the continued appreciation in the Chinese yuan. Even though much of Chinas economic data may be disappointing, as long as the yuan keeps appreciating, thats good for the equity markets.
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U.S. Housing Starts & Building Permits The Commerce Departments monthly housing starts report is the most closely followed report on the housing sector because it discloses the number of new residential buildings under construction in the U.S. The report is based on the previous months data.
China Property Price Index Monthly data released by Chinas Bureau of National Statistics provides pricing information for both new and pre-owned housing in 70 major cities across the country. Beige Book FOMC commentary on current conditions in each of the Federal Reserves 12 districts is released two weeks prior to the next FOMC meeting. This months Beige Book is for the April 29-May 1 meeting. U.S. Housing Sales and Pricing Indicators >U .S. Existing Home Sales This monthly report from the National Association of Realtors provides sales-closing data on previously constructed homes, condos, and co-ops. >U .S. New Home Sales Issued monthly by the U.S. Census Bureau, U.S. Commerce and Housing Departments, this report reveals the number of newly constructed homes with a committed sale. >U .S. S&P Case-Shiller Home Price Index This index, released on a two-month lag, tracks changes in the value of residential real estate in 20 metropolitan regions across the U.S.
Were heading toward spring selling season. 4.98 million houses were sold last month, the highest level since November 2009. The recovery in existing home sales indicates that housing prices have not only troughed, but that weve closed the gap between buyers and sellers that existed a couple of years ago. In fact, I think the little bump-up were seeing in the 30-year Treasury is motivating demand, and buyers who were waiting to see if prices would move any lower are beginning to take action. Clearly we are seeing an improvement in Case-Shiller home prices. I think thats been contributing to some of the surprise we are seeing in consumer spending and their ability to weather the storm.
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U.S. Q1 GDP The quarterly GDP report, released by the U.S. Commerce Department, tracks the purchases of all U.S. goods and services in all sectors and is the broadest measure of the economy. Preliminary Q1 GDP will be released this month. China Manufacturing PMI China PMI (purchasing managers index) is released on the last day of the month. This monthly gauge of Chinas manufacturing sector, combined with the monthly U.S. ISM Manufacturing Index value released the next day, gives a clear picture of global manufacturing health. An index value above 50 indicates growth, below 50 contraction. FOMC Meeting Begins The next FOMC meeting will be held on April 30-May 1.
The FOMC will have only one U.S. labor report to digest at this meeting, compared to two labor reports at the next (June 19) meeting. The tendency for the FOMC to make substantial changes, whether in language or action, has generally been when they have two labor reports to consider. One is generally not good enough. and the distance between the March 20 and May 1 meeting will only allow for one labor report.
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JOSEPH M. TERRANOVA, Chief Market Strategist, Virtus Investment Partners Joe Terranova is chief market strategist for Virtus Investment Partners. He was elevated to that position in June 2009, having started with the company in the role of chief alternatives strategist. In his current role, Mr. Terranova works with Virtus regional sales teams and the nancial advisors who sell the companys investment products, providing insight into the domestic and global investing landscape and has represented Virtus as a keynote speaker for several nancial institutions. He is a member of the Virtus Investment Oversight Committee. Prior to joining Virtus in 2008, Mr. Terranova spent 18 years at MBF Clearing Corp., rising to the position of director of trading for the company and its subsidiaries. In this capacity, he managed more than 300 traders and support staff for MBF, one of the New York Mercantile Exchanges largest rms. His work was highlighted as the feature story in the June 2004 issue of Futures magazine. Mr. Terranova is perhaps best known for his risk management skills, honed while overseeing MBFs proprietary trading operations during some of the most calamitous times for the U.S. markets, including the rst Gulf War, the 1998 Asian Crisis, 9/11, and the collapse of Amaranth Advisors. In 2003, he was one of the rst Wall Street professionals to make an early call for higher energy, natural resources, and commodity prices. In June 2008, he cautioned investors to move to the sidelines in commodities and, in March 2009, he encouraged investors to ignore the global embracement of pessimism and overweight equities. Before joining MBF, Terranova held positions at both Swiss Banking Corp. and JP Morgan Securities. Mr. Terranova has been an ensemble member of the CNBC Fast Money franchise since 2008. He also frequently contributes exclusively to CNBCs other business programs. He is the author of Buy High, Sell Higher (Business Plus, 2012), a book about the new rules of investing based on his years as a professional trader. In 2007, Mr. Terranova and Hockey Hall of Fame player Mike Bossy established Bossys Bunch, a program that rewards excellence in the classroom for elementary school students. Mr. Terranova earned a bachelors degree in nance from the Peter J. Tobin College of Business at St. Johns University in New York.